Irvington Officials Vote to Use Eminent-Domain Powers in Unusual Way

But citing the example of Richmond, several council members said such a complex matter required thorough discussion. Councilwoman Lebby Jones voted against the plan, saying it did not relieve her concerns about the potential cost of defending against litigation from the financial industry.

Richmond is working with a private equity firm, Mortgage Resolution Partners of San Francisco, which would administer the mortgage acquisitions and provide legal defense for the city. Big banks and finance industry groups have challenged this arrangement, saying Richmond cannot pay fair market value for mortgages while building in profit for MRP.

Industry officials threatened to refuse to issue loans to the city or its residents, a practice known as “red-lining.” While that is technically illegal, it remains uncertain whether federal and state authorities would respond. They did not in the first test of the threat, as banks refused to submit bids on an unrelated and routine bond issue with which the city sought to refinance some debt.

Jones said she understands Irvington residents’ anger, because the value of her home has dropped from $270,000 to $165,000. But she said it is her understanding that “once you’re in foreclosure, there’s nothing you can do” legally.

“I don’t want you up in arms thinking you’re going to get something and then be disappointed,” Jones said. “How many times do we get caught up in a rapture and are emotional?”

Councilman Paul Inman voted for the plan, but cautioned that eminent domain is “just another tool” in an effort to fight blight. The measure authorizes the township Planning Board to proceed with the details of redevelopment, but the council would have to approve any funding.

“It’s not going to happen overnight,” Inman said.

“This is just one step,” Councilwoman Charnette Frederic agreed, “but the whole concept is to help our homeowners.”

Relief Programs Fall Short of Goal

The intensified local effort comes in the wake of reports that federal foreclosure relief programs have fallen far short of official targets.

Earlier this month, five major mortgage lenders received official certification that they have complied with their obligations under a $26 billion settlement of foreclosure fraud with the federal government and most states. But the money helped only a tiny fraction of affected homeowners.

Since January 2012, the five big banks -- Ally Bank (the former GMAC), Bank of America, Citibank, JP Morgan Chase and Wells Fargo – have paid $6 billion to the states, ostensibly for foreclosure relief. Many states, including New Jersey, diverted portions of these funds to other things.

Meanwhile, the lenders put $20.7 billion toward consumer relief, according to Joseph Smith, the former North Carolina banking commissioner who serves as national monitor of the settlement. When the deal was announced, federal and state officials said the money would help roughly 1 million homeowners.

Data from the monitor’s office indicate that 171,663 homeowners received modifications of first mortgages or refinancing, “the two categories of relief where people are likely to have kept their homes,” according to a spokeswoman for the Office of Mortgage Settlement Oversight.

But the numbers also show that at least 182,728 participants lost their homes through short sales or by surrendering their deeds to lenders, who received credit for this under the settlement. Banks’ self-reported claims of state-by-state relief, as well as the monitor’s national findings, can be viewed here.

During the same period, banks completed foreclosures on 1.45 million homes, according to the real-estate analytics firm CoreLogic of Irvine, CA. Much of their credited consumer relief amounted to such moves as forgiving second mortgages, often done among lenders as a courtesy to speed the foreclosure process.

While the settlement would have given the banks credit for loan forbearance to borrowers who lost their jobs, an issue in high unemployment areas like New Jersey, none reported doing so, according to the monitor.

Meanwhile, the U.S. Department of Justice has released an internal audit showing it vastly overstated its success in curbing mortgage fraud, and continued to cite the inflated numbers even after the errors were uncovered.

For example, at an October 2012 press conference, department officials claimed to have filed criminal charges against 530 people responsible for more than $1 billion in mortgage fraud. But the real numbers were 107 defendants and $95 million, according to the audit report.

At the same time, the FBI received a $196 million appropriation to combat mortgage fraud, then classified that as its absolute lowest priority in the lowest-priority category for criminal investigation and cut the number of agents assigned, according to the audit, which can be read here.